Cover note (Agenda Paper 6)

This paper introduced the papers for this meeting and included questions for the IASB. The comment period for the request for information Post-implementation Review—IFRS 15 Revenue from Contracts with Customers (RFI) ended on 27 October 2023.

Feedback summary—IFRS 15 requirements (Agenda Paper 6A)

This paper summarised the feedback from respondents related to following aspects of IFRS 15:

The objective, core principle and five-step revenue recognition model

Respondents’ overall assessment of IFRS 15 was very positive. Almost all respondents said that IFRS 15 has achieved its objective and is working well. The five-step model is generally seen as a suitable basis for analysing revenue contracts of varying complexity across a wide range of industries and business models. Respondents raised no fundamental questions about the objective and the core principle of the standard, although most respondents said that some application challenges remain. A few respondents said that IFRS 15 is a significant improvement on the previous limited revenue recognition requirements.

Understandability and accessibility

Some respondents (mostly standard-setters) said that the standard is well-structured and understandable and the supporting application guidance and illustrative examples have helped entities in making judgements. A few respondents highlighted that Transition Resource Group (TRG) discussions were very useful in supporting the implementation of the standard.

Costs and benefits

Most respondents said that transition to IFRS 15 was challenging and costly, particularly for some industries such as telecommunications, construction and software. A few preparers said that transition went smoothly and the costs were in line with their expectations.

This paper also covers the feedback on IFRS 15 related to the following points:

• Identifying performance obligations in a contract
• Determining the transaction price
• Determining when to recognise revenue
• Principal versus agent considerations
• Licencing
• Disclosure requirements
• Transition requirements
• Convergence with Topic 606
• Other matters

IASB discussion

IASB members were very pleased to see that the overall assessment of and feedback on IFRS 15 from respondents was very positive and the standard is working as intended. Regarding the majority of the issues raised by respondents related to difficulties in implementation (e.g. difficulties in the application of the principal vs agent assessment and identification of performance obligations requirements), one IASB member said that the clarifications for many of these items are already available in illustrative examples accompanying the standard and stakeholders should utilise these to the fullest.

In response to feedback that entities are required to make significant judgements in complex arrangements and this can sometimes result in different outcomes and inconsistency of application, one IASB member said that IFRS 15 is a principles-based standard and it is expected that significant judgements need to be taken by entities which results in different outcomes for a variety of complex transactions. This would be acceptable because every transaction is unique having its own complexity and a small change in the fact pattern of the arrangement and business model of the entity can change the significant judgements and the resulting outcomes. Therefore, the IASB member disagreed with the criticism that the standard is inconsistent.

Another IASB member said that providing more examples with different facts patterns is also not very useful as small changes in real life arrangements will change the significant judgements and outcomes as compared to the additional examples that may be added in the standard. The IASB member mentioned that it is not possible to eliminate the application difficulty with respect to making significant judgements by adding additional guidance or examples in the standard. Another IASB member however mentioned that from an investor’s perspective the agent vs principal assessment is a very important decision as it affects revenue numbers significantly and the IASB should consider adding additional guidance or examples to address this in the standard. This ensures that entities make these assessments correctly.

One of the IASB members said that the world has digitalised significantly since the pandemic and that IFRS 15 was developed 10 years ago when digitalisation and online sales were not as prevalent as they are today. Because of available digital platforms third parties are usually involved in transactions while the standard was mainly written from the perspective of two parties (i.e. a customer and a supplier). Therefore, high involvement of third parties in arrangements can now result in difficulty in applying the measurement, recognition and presentation requirements of IFRS 15. He emphasised that the IASB should do more analysis in this regard and although it is possible that the standard is clear on how to deal with these digital situations. The staff should consider the feedback received and explore narrow amendments to the standard or additional guidance to address this.

Overall, IASB members agreed that no major changes to the standard are necessary based on the feedback. The main criticism received from respondents is that the freedom that IAS 18 provided is now lost with IFRS 15. However, IFRS 15 helped to align the revenue recognition and measurement requirements and to increase comparability of the financials of various entities. It has also resulted in entities improving their internal controls.

Feedback summary—Applying IFRS 15 with other IFRS Accounting Standards (Agenda Paper 6B)

This paper summarised the feedback on applying IFRS 15 with other IFRS accounting standards.

In the RFI the IASB asked stakeholders to provide information about challenges in applying IFRS 15 with other standards, in particular with IFRS 3, IFRS 9 and IFRS 16. In addition, respondents commented on the application of IFRS 15 with IFRS 10, IFRS 11, IFRIC 12 and other standards.

IASB discussion

In response to feedback that some areas of IFRS 15 are not fully converged with some other IFRS standards, one IASB member acknowledged that small differences between various IFRS standards and IFRS 15 remain and said that the IASB should aim to remove those differences.

Some respondents requested to add IASB agenda decisions to the standard itself, however one IASB member said that this would be inappropriate.

Plan for PIR Phase 2 (Agenda Paper 6C)

This paper set out next steps for phase 2 of the post-implementation review (PIR) in the light of the feedback to the RFI summarised in Agenda Papers 6A and 6B.

As a result of a PIR, the IASB decides whether overall, a standard is working as intended and whether to take action on any specific application matters raised by stakeholders.

In phase 2, the staff will first ask the IASB to consider specific application matters and then to decide whether IFRS 15 overall is working as intended.

IASB discussion

IASB members determined that the next steps are to weigh the pros and cons of any potential required changes based on a cost-benefit analysis. However, currently the majority of IASB members have little appetite to propose any major changes to IFRS 15 based on the PIR.